Congressional Record, Volume 143 Issue 51 (Friday, April 25, 1997)

[Congressional Record Volume 143, Number 51 (Friday, April 25, 1997)]
[Senate]
[Pages S3704-S3710]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

MEDICARE

Mr. THOMAS. Madam President, we want to take some time this morning
to talk a little bit about an issue that is very current, is always
current, but particularly current because the trustees of Medicare have
given their annual report. So we want to take some time and talk a
little bit about an issue that all of us are very much interested in. I
think, universally, we want to keep health care for the elderly. But
the difficulty has been in facing up to some of the realistic changes
that have to be made if, indeed, we are going to continue to have
Medicare.
The conflict has always been a political one, frankly, between those
who say Medicare is the third rail of politics--touch it and you are
dead. So nobody wants to talk about it. At the same time, there is a
growing recognition, a growing certainty, that unless you make some
changes, this program will not be available for the elderly in years to
come. So there will be several of us talking about that.
First, I would like to yield to my friend, a very strong spokesman on
this and other issues, the Senator from Idaho.
The PRESIDING OFFICER. The Senator from Idaho [Mr. Craig] is
recognized.
Mr. CRAIG. Madam President, I thank my colleague from Wyoming for
bringing this special order to the floor and to the attention of our
colleagues.
For those who are watching this morning, yesterday, the Medicare
trustees issued a report that was no surprise but, clearly, once again,
reaffirmed to the administration and to the Congress of the United
States that there is no good news when it comes to the strength and
stability of the Medicare trust funds. What we had hoped for was just
news. Knowing that it wasn't going to be good, the question was how bad
was the bad news going to be?

[[Page S3705]]

Two years ago, the trustees forecasted that the Nation's Medicare
Program would be bankrupt, out of money, by the year 2002. Just last
year, the trustees revised that prediction, saying bankruptcy would
come sooner, in the year 2001. CBO has also predicted that the trustee
fund would be broke by 2001, that it would run a deficit. It is now
running a deficit. It did for the first time this past year, and it
will run a $10 billion deficit this year. In other words, more money is
being pulled from the trust fund than is now flowing into the trust
fund to make it safe and secure.
So let's face it. Our Medicare system is in critical condition, and
it deserves to be treated as a patient with an illness. In this
instance, we--the Congress of the United States and the President--are
the doctor. Or, another way to say it, Madam President, is we sit on
the board. We are the board of trustees, and the President is the
chairman of the board.
It is our responsibility to fix the problems that are now very, very
clear, and which have been repeated for 5 years in a row by the
trustees of Medicare. Two-thirds of these trustees are appointed by the
President--this President. It is their job to report to him, as they
did yesterday, and to the Congress on the health of Medicare. And they
have reported that the health is not good at all. So, for 5 years
running, not only have we received these reports, but the
administration has received the identical reports.
Last year, recognizing that, we dealt with it. We looked at a 30-
year-old health insurance program that provides health insurance
coverage for 35 million Americans and said, in that 30-year history, it
really hasn't had major overhaul or reform to fit modern health care
needs and to fit modern seniors; therefore, we ought to do something
about it. And we did.
That reform went in the balanced budget down to the White House, and
the President vetoed it. For a year after that we saw television ad
after television ad saying that the Congress of the United States had
been irresponsible, that somehow they were trying to destroy Medicare
as we know it for the stability and the security of our seniors when,
in fact, we had offered a variety of modern options that would not only
provide seniors with adequate health care and health care coverage but
would address the deficit that, once again yesterday the trustees,
appointed by this President, said, ``Mr. President, Congress, we report
to you that this sick patient called `Medicare' is growing sicker by
the day and that it is still a 2001 bankruptcy, but it is not going to
be late in 2001 now. It is going to be early in 2001.''
My guess is, if we do nothing this year, the trustees will come back
next year and say, ``Well, it is not going to be early 2001 now. It is
going to be late 2000.''
What is the point of our discussion here today? The point is that we
are prepared, as a Congress of the United States, to work with this
President to reform Medicare, to save it, to secure it, to strengthen
it, and to modernize it for the senior citizens of this country.
I mentioned 35 million Americans being covered. By the year 2001, it
is going to be 38 million Americans. So there is always a growing and
greater dependency on this program. It clearly is our responsibility to
address it, and to address it in the right and appropriate fashion.
That is a bipartisan approach. That is the President and the Congress
of the United States sitting at the same table. That is not one party
trying to lead over another. I am sorry, the House and the minority
leader of the House, it is not a political game anymore. You are not
going to get any more mileage by demagoging or by pulling the programs
out and sticking them under the general fund and allowing them to
increase beyond the rate of private health care in this country.
It is time that we must come together as a group--the board of
trustees, those responsible for the strength and security of Medicare--
and address it in the appropriate fashion.

THE GOVERNMENT SHUTDOWN PREVENTION ACT

Mr. CRAIG. Madam President, I want to address one other issue
briefly. It is going to become one that all of us will be increasingly
involved in as this month plays out and as the House works on it. The
Senate will soon deal with the supplemental appropriations.
My colleague from Texas, Senator Hutchison, has just entered the
Chamber. She, I, and the leader all have recognized the importance of
this supplemental appropriations. But we also recognize the importance
of avoiding the kind of budget battles in the future that allowed the
shutdown of Government a couple of years ago.
So the Senator from Texas has introduced what I call--and I believe
she calls--a ``safety net'' funding mechanism for 1998 that will
disallow Government shutdowns. We call it a ``continuing resolution.''
We simply say the budget process goes on and the appropriating process
goes on, and, while we work out our differences with this
administration, let us pass a continuing resolution that is 98 percent
of 1997 levels so that we continue to gain our savings toward a
balanced budget, but we can turn rationally to the Government itself
and say, ``We are not going to hold you out as hostage. It is important
that we work cooperatively together.''
I hope that we will continue to look at this. It is time that we deal
with it directly. The bill is clearly about politics as usual, and it
would change the whole dynamics of the debate. It would allow us to
work in a timely and appropriate fashion on the necessary
appropriations bills. Twenty-seven days of Government shutdown in
December 1995 and January 1996 furloughed over 800,000 Federal
employees. There was a lot of political posturing. But in the end
nobody gained, and a good number of people got hurt. The Congress of
the United States and the President weren't doing what they should have
done.
The Government Shutdown Prevention Act as a continuing resolution
coupled with the supplemental will build that very kind of safety net
so we can go ahead to continue to work together in a bipartisan manner
as we work to resolve our budget differences, strike a budget that is
balanced by the year 2002, and deal with the Medicare crisis impending
by the reports of the trustees of just this past day.
These are important issues that the Senate of the United States and
this President must come together on. I hope we can do that in the next
month, especially on supplementals. But I also hope the President
recognizes that Medicare really doesn't deserve to be tinkered with nor
nibbled around the edges anymore as a way of solving the problem.
We don't need a 1-year or a 2-year fix. We really need a long-term
reform approach that strengthens, maintains, and offers a variety of
options for the seniors of our country so they can have the
understanding that this Congress has dealt with their concerns in a way
that should not alarm but assures them a strong and a safe program.
I thank my colleague from Wyoming for establishing this special
order. And I yield the floor.
Mr. GRAMS addressed the Chair.
The PRESIDING OFFICER. The Senator from Minnesota.
Mr. GRAMS. Madam President, thank you very much.
(The remarks of Mr. Grams pertaining to the introduction of S. 652
are located in today's Record under ``Statements on Introduced Bills
and Joint Resolutions.'')
Mr. THOMAS addressed the Chair.
The PRESIDING OFFICER. The Senator from Wyoming.
Mr. THOMAS. Madam President, I would like to return to our
conversations about Medicare, and I am very pleased to have my fellow
Senator from Texas here. Senator Gramm has been chairman and continues
to be chairman of the task force on health care, and I am particularly
pleased he has joined us this morning to talk about Medicare and
Medicare reform.
Mr. GRAMM addressed the Chair.
The PRESIDING OFFICER. The Senator from Texas is recognized.
Mr. GRAMM. Madam President, I thank Senator Thomas for his leadership
today by asking people to come talk about Medicare. I am the chairman
of the of the Finance Committee's Health Care Subcommittee, which has
jurisdiction over Medicare. I wanted today to come over and talk about
Medicare in light of the report issued yesterday afternoon at 4 o'clock
which reaffirmed that Medicare is in the red for the first time in its
history and that the trust fund which funds the hospital care portion
of Medicare will

[[Page S3706]]

be totally insolvent in 4 years. The cumulative debt that will be
imposed on the American people by the existing Medicare program in the
next 10 years will rise to $1.567 trillion--that is ``trillion'' with a
``T.'' Obviously, a lot of people were alarmed by this report. I agree
with virtually everything that the Secretary of Health and Human
Services, Secretary Shalala, said, except one comment. That one comment
was when she sought to reassure people that there was no current crisis
in Medicare. Madam President, if this is not a crisis, I would like to
know what a crisis looks like.
What I would like to do today, very briefly, is to outline the
crisis. I am a firm believer in the old Biblical admonition, you shall
know the truth and the truth will make you free. So I want to start
with the bad news, because if we do not understand this problem, there
is no way we can fix it. Then I would like to conclude with the good
news. The good news is that as bad as the problem is, we can fix it. We
can strengthen Medicare for existing beneficiaries, and more
importantly, we can restructure Medicare to guarantee that it is going
to be there for our children and our grandchildren. But we cannot do
any of these things if we are not willing to make tough decisions.
Part of the problem we face is that the Medicare has been too
politicized with fear. It has been used as a partisan issue. The
President has probably been more irresponsible than any public official
on this issue. What we are going to have to do--and by ``we,'' I mean
all Members of the Senate, but specifically I mean Republicans--is set
aside all of the partisanship on Medicare. We are going to have to
forget the bitter experience of the last election where the President,
in essence, said to the American people, ``There is no problem, this is
simply Republicans who want to cut your benefits.'' We can pout about
it, but pouting will not solve the problem. What we have to do is to
get on with the solution.
Let me try to define the problem. If this sounds overwhelming, it is
because the problem is overwhelming.
First, Medicare was enacted in 1965, and when it started, it was to
be funded by a 0.7-percent tax on the first $6,300 of earnings of all
American workers. That was going to pay for Medicare. In fact, the cost
projection for Medicare made in 1965 for the year 1995 was only off by
a margin of 100 to 1. In other words, the program turned out to be 100
times more expensive than was originally predicted when Medicare went
into effect.
We started with a 0.7-percent tax on the first $6,300 a year you
earned to pay for Medicare, but have since raised that tax on a
continuing basis. Today it is 2.9 cents out of every dollar of income
earned by every American worker. Yet, despite that massive increase in
taxes, the Medicare trust fund is still exhausted; it is in the red.
The trust fund is not only in the red, but all of the existing assets
will be depleted in 4 years.
When you add up the both parts for Medicare, the part that pays for
hospitals and the part that pays for doctors, according to the
Congressional Budget Office, the nonpartisan accounting branch of the
Congress that looks at these numbers, we are looking at roughly $1.6
trillion of debt in Medicare within a decade. That is the crisis.
Unlike a lot of crises that we talk about in Congress, this is not
something that is going to happen in sweet by-and-by. This is something
that is happening right now.
I have a chart that shows the estimates that are made by HCFA, a part
of Health and Human Services and obviously, part of the Clinton
administration. This chart shows the financial health of the Medicare
trust fund beginning in 1995, where we had a very slight surplus. That
now is virtually exhausted, and unless we make dramatic changes in
Medicare, this exploding red chart shows what is going to happen in
terms of the debt of the Social Security trust fund.
For example, 32 years from today, the debt of Medicare, simply the
hospital part of the program, will be over $11.5 trillion. I don't know
how to define a trillion dollars, but I have a constituent who knows
what a billion dollars is, Ross Perot. I may have a few constituents
who know what a million dollars is, and most of us know what a thousand
dollars is. But not many of us know what a trillion dollars is.
Let me put it another way. In 32 years, unless we do something, the
debt of one-half of the Medicare program will be over twice as big as
the whole current national debt. Needless to say, whether you are a
Democrat or Republican, liberal or conservative, whether you work for
the Urban Institute think tank or whether you work for the Cato
conservative think tank, everybody who has looked at this problem with
any degree of scientific basis concludes one thing: This is not
sustainable. Twenty-five years from now, if we don't change this
program, we are going to have to triple the payroll tax in order to pay
these benefits.
I want to remind you that the average American family now is paying
over 15 cents out of every dollar they earn in payroll taxes and, at
the margin of the last dollar they earn, 28 cents out of every dollar
in income taxes. If such an explosion in the tax rate at a moment where
we have the highest tax rate in American history, as we do today,
doesn't frighten you, it should.
What is causing this problem? There are really two causes. The first
one is an explosion in Medicare per capita costs. It is easy looking
back at 1965--when many of us were not in the Senate and when some of
us were in college and not worried about this problem--and criticize
people who wrote the Medicare program. But in retrospect, the structure
of the system makes no sense. I will give you only one example.
On hospital care, a big component of Medicare critical to our
seniors, if you are in a hospital for up to 60 days, you have no
copayment. Every penny of the hospital bill, except for a deductible,
is paid by the taxpayer, but on the 61st day, you become responsible
for a copayment of $190 a day. On the 91st day, it goes up to $380 a
day, and on the 150th day, they throw you out in the street. If you
have been in a hospital for 61 days, you are sick. If you have been in
a hospital 61 days, the presence of a copayment is not going to change
your behavior, because you are already very, very ill.
What this irrational structure has done is it has forced our seniors
to dig into their pockets and pay between $1,100 and $1,300 for what is
called medigap insurance. My mother pays about $1,100 a year for a
medigap policy that fills up all these gaps in Medicare so she doesn't
have to worry about losing her home if she ends up in the hospital for
an extended period of time. But once she has paid for this medigap
policy, she then has no copayments and no deductibles on anything other
than prescription drugs.
So what we have done is set up a system where the copayments are at
the end of the system, inducing people to have great risk, but they do
not change anybody's behavior. Instead, force people to spend a lot of
money to guarantee against it, but once they spend the money, health
care to them is free.

There are a lot of reforms we need in Medicare, but two are obvious
to a blind person. No. 1, we need to give our seniors the ability to
pick and choose among competing alternatives, not just an HMO in places
where one is available. They need to have a whole range of other
options that people can choose. The Federal Government needs to do
something in Medicare which long ago everybody else started to do, and
that is bargain. The Federal Government with Medicare is the largest
consumer of health care in America, and it is the only consumer that
does not bargain on the basis of price.
The second thing we need to do is reform the current Medicare policy
to put the deductibles and copayments up front. I know this sounds
extraordinary, but I want to mention it today. As the debate unfolds, I
will talk a great deal more about it. We could take the amount that the
average senior is now spending on health care, including what they
spend on medigap insurance, copayments, deductibles, and
pharmaceuticals--which is not covered, and instead have a simple
deductible of $1,000 and copayments of 20 percent, with a cap on those
copayments of $1,000. Doing this would change the system in a way where
the average senior would not be spending 1 penny more than they are
currently spending. But by changing the incentive, we could save enough
money to pay for pharmaceuticals for all of our seniors. The

[[Page S3707]]

cost of such a drug benefit is $62 billion over the next 5 years. That
is how inefficient the system is.
So we want to defend the benefits and defend the seniors, but we have
to be willing to fix a system that is broke. If we do those things, we
can stop the explosion of per capita costs, and we can actually improve
the system, in my opinion.
That is only part of the problem. The next part of the problem is a
demographic time bomb, and let me explain how it came about and how big
the problem is and then talk about how we fix it.
When Medicare was written, something extraordinary was going on in
America. It was 1965, and what we call the baby boomer generation was
just beginning to enter the labor market. This chart I have shows the
birth rate in America from 1930 to 1985. It is a pretty extraordinary
chart. What happened is that the birth rate was relatively low in the
Depression. There was a little spike during the war. But when Americans
came home from the war--while economists were worried about whether
were we going back into the Depression or what the future was going to
look like--Americans decided the future was going to be great. One of
the things they started doing was having babies at an unprecedented
rate since the colonial period.
In fact, a number of Members of the Senate today were born as part of
this baby boom generation.
When Medicare was written, it was the first year a baby boom group
had entered the labor market. In fact, these first baby boomers, born
in 1946--causing this big spike--came into the labor market the same
year that Medicare was written. That year four times as many new
workers came into the labor market as had come in just 2 years before,
and as far as they could see, it did not look like it was ever going to
end.
However, had they actually gone over to the Census Bureau and looked
at the data, they would have seen it had already ended. But, when you
are spending money and making people happy, you do not want bad news;
you want good news. The good news was we were about to have this
explosion of new American workers, and so Congress decided that we
could fund Medicare by simply using a transfer payment, almost like a
chain letter, and I do not intend to be critical. They decided that
these workers are so numerous--and wages immediately after the war had
grown twice as fast as they had grown in the modern era--that we can
simply tax them and begin providing medical benefits for retirees
immediately, funding this as a transfer payment.
Now, this system worked great until these baby boomers started to
near retirement. This chart is an extraordinary chart because you can
see where we are. The people who are retiring today were born in 1932.
You can see from this chart the birth rate in 1932--in fact, here it
is, 65 years ago. The birth rate in 1932 was relatively low, and in
fact this year only 200,000 people are going to retire. This is as good
of a year as we are going to get.
In fact, these should be the best years in the history of Medicare.
These are really the fat years since there are relatively few retirees
and every baby boomer is still in the work force.
Let me just use a story from the Bible. Remember Joseph, Jacob's son,
who was the favorite son of his father because he was real smart. His
father bought him a multicolored coat. You remember the story. His
jealous brothers kidnaped him, hid him in a well and sold him into
slavery in Egypt. One day the Pharaoh of Egypt dreamed of seven fat
cows and seven skinny cows. The seven skinny cows ate the seven fat
cows. Nobody could interpret the dream. Then he hears about Joseph,
this guy who can interpret dreams. He sends for Joseph, and he
interprets the dream. He explains that there will be 7 years of plenty
followed by 7 years of drought. The Pharaoh commissions Joseph to set
up stores of grain during the years of plenty. He stores the grain, and
then the drought comes, and the people are happy.
Now, today we are in the fat years. We have all these baby boomers
still working. We have the lowest number of people retiring that we
have had in the recent past or that we will ever have again in the
history of the country. Yet in the midst of the fat years we are broke.
In the midst of the fat years there is no grain being stored. We have
guaranteed benefits to a whole generation of Americans, and we have not
set aside a penny to pay for them.
Whereas only 200,000 people are going to retire this year, 15 years
from today 1.6 million people are going to retire, and that number is
not going to change for 20 years. The impact of that is cataclysmic--
cataclysmic.
Now we are beginning see apologists write letters and say, OK, look,
people like this guy Gramm and a lot of other people are saying we have
this terrible problem. We are going from 5.9 workers when Medicare
started per retiree to 3.9 workers per retiree today to 2.2 workers per
retiree by 2030. People who say, don't worry about it might agree that
we are about to have this huge number of people retire and claim a
benefit for which we cannot pay. But, they say, we can rejoice in the
fact there are fewer children, and since the average family spends
$110,000 on things for their children before they are 18, we could get
them to give us that money so that we could spend it on somebody else.
We might be able to solve this problem with additional taxes.

Well, look, here is the problem. We do spend mammoth amounts of money
on our children, but we are joyful givers in doing giving to our
children. People do not feel the same way about paying taxes. We are
pretty efficient in spending money on our children most of the time,
yet our Government is not terribly efficient.
That is the problem. I do not care how you try to gloss over it, this
is a big problem. Solving this problem is going to cost more money in
real, inflation-adjusted dollars than it cost to win World War II.
So what is the good news? The good news is the following. No. 1,
today, the average 22-year-old worker, who is paying 2.9 percent of
their income into Medicare, and is paying for Social Security benefits,
unless we do something and do it quickly, will never get the kind of
benefits I would. It would not be possible to get the kind of benefits
their parents are getting today. But if they simply took 1.3 percent of
their wages and invested that in an annuity that earned a 3.0-percent
real rate of return--a pretty conservative rate of return--they would
have assets when they retired at 65 big enough to fund a private health
policy that would cover everything Medicare covers.
Now, think about it. The average 22-year-old today is paying over
twice what they would have to pay if they could simply set aside part
of their income to pay for their own retirement health care. In fact,
the average 39-year-old worker, if allowed, could put that 2.7 percent
into a real investment, instead of giving it to Medicare, and could
fund their health care in retirement.
Now, what we are going to have to do to fix Medicare is the
following. We are going to have to, first of all, set up a system where
young workers can put at least part of what they are paying into
Medicare today in a real trust fund that will guarantee them some
health care benefits. If we do not do that, we are simply going to have
a generation that is going to pay for benefits that they never get.
So the first thing we have to do in dealing with this long-term
structural problem is to take at least part of the tax for Medicare
being paid by young people and set up a real trust fund for them.
Second, we are going to have to admit that we have an unfunded
liability on Medicare of $2.6 trillion. Now, swallow hard and think
about that number. That is the number that we owe because we guaranteed
these benefits, and we never set aside any money to pay for it.
What we are going to have to do is take part of the premiums of young
people and invest them to guarantee their benefits. Over the next 50
years we are going to have to come up with $2.6 trillion to pay off
this debt we have. That is a lot of money, but let me tell you, if we
set up a transition program, we could do it.
Let me conclude with this point. We are in the midst of a budget
debate. You are going to hear in the next few weeks debate on the floor
of the Senate about the budget, and you are going to hear people
talking about cutting Medicare or politicizing the Consumer Price Index
to cut Social Security to pay for balancing the budget or to pay for
tax cuts.

[[Page S3708]]

We are not going to make money by saving Medicare. We are not going
to make money by saving Social Security. Anybody who thinks that by
saving Medicare we are going to enable ourselves to spend money on
other things simply does not understand the problem. It is going to
cost money to save Medicare. It is going to, 20 years later, cost money
to save Social Security. And if we want to balance the budget, we are
going to have to do it by having less bureaucracy and less Government.
Every penny we save in reforming Medicare has to go to save Medicare.
If we ultimately, as a result of decisions by economists and not
politicians, change the Consumer Price Index and we save money on
Social Security, every penny of that money has to go to strengthen
Social Security. We cannot let Congress go out and spend it on
something else because the problem is already a severe problem, and
every day we put it off it gets worse.
Let me conclude with the Fram oil filter argument. If today we
decided to fix Medicare and change the system to stop the explosion in
per capita cost, then get Medicare benefits purchased by the Government
as purchased as efficiently as medical care purchased by the private
sector, then we set up a 50-year transition program that allowed us to
pay off the money we owe to provide the benefits to current
beneficiaries of Medicare, it would cost us about $2.6 trillion, which
is about half of the existing Federal national debt. We owe the money
we committed. We are going to have to pay it. But if we wait 10 years
to do anything, that unfunded liability is going to rise to $3.9
trillion. And if we wait 20 years to do anything, it is going to rise
to $6.1 trillion, which is bigger than the current national debt.
So what we have to do in Medicare is this. First, we have to admit
that we have a terrible problem, and it really boils down to two
things. No. 1, we do not have a system that is efficient and that
encourages economy, and we have to change it. No. 2, we have a huge
unfunded liability because Congress has guaranteed all these benefits
year after year after year. At the very moment when we ought to be
piling up big surpluses to pay for these benefits, the system is going
broke.
So we have all these guarantees and we have not a penny to pay for
them. And we are going to have to pay for them. Nobody is arguing that
we forfeit on these commitments we made.
Now, I know, as we get into this debate, there will be people on the
floor of the Senate and there will be many professional advocate groups
that will say, my goodness, you are talking about these big debts.
Don't you realize this is Medicare, and it is wonderful and it is
great? That is like when you are trying to call the fire department
because the house is on fire, and somebody says, well, it is burning,
but isn't it a beautiful house? Isn't it great and don't we want to
keep it the way it is? Well, the point is it is on fire.
The second thing we have to do is to come up with a long-term funding
mechanism. All these issues can be demagoged. All of them can be very
rich politics for somebody who wants to exploit them. But look at the
cost of doing that. The cost is dramatically changing the real income
of our children and grandchildren.
If we do not deal with Medicare now, if we do not deal with Social
Security 15 years from now, we are going to have the first generation
in American history that is going to have lower living standards.
I am not saying these problems are easy to deal with. When you
guarantee a benefit and you do not set aside money to pay for it, when
people start claiming it, there is no easy out. But the point is, there
are things we can do. And we have been putting off and putting off and
putting off doing something about Medicare. The time has come to start
making some tough decisions.
And it seems to me, Mr. President, that on the day when we have just
gotten another report from the Social Security trustees and from the
Medicare trustees basically saying, ``Alert. Medicare is going to be
insolvent in 4 years,'' and it is going to have a cumulative debt for
the hospital and physician portions of about $1.6 trillion over the
next 10 years, the time has come to do something.
I hope we can do it on a bipartisan basis. As chairman of this
subcommittee, whether we have a budget or not, my goal is going to be
to try to do something about Medicare. This is not a budget problem.
This is not about the deficit. This is about maintaining the viability
of a program that is critically important.
As I said yesterday at a press conference, there are a lot of things
I am going to do in my life that I do not want to do. But I am never
going to pick up the phone and call my 83-year-old mother, and say
``Momma, Medicare went broke today. It went broke because Congress
didn't want to tell anybody that there was a problem, and we didn't
have enough courage to do something about it.''
I am going to talk about this problem a lot because 4 years from now
all America is going to know about it. And 4 years from now every
Member of the Senate who is still here is going to have to answer the
question: Where were you when all this happened? Where were you when
all this was going on? Why didn't you say something about it? Why
didn't you do something about it?
I am going to say a lot about it. I hope to do something about it.
I want to thank the Chair for giving me this opportunity today to
come over.
This is a speech that is going to have to be given many, many times.
The first reaction, when you get news like this, is denial. I guess it
is sort of like going in to see the doctor, and the doctor says,
``Well, I hate to tell you this, but you've got a debilitating disease
that can ruin your life.'' I mean, the first thing we all want to do is
say, ``No. You have messed up this test. This is somebody else's test.
This can't be me. I am a guy that works out. I run. I say my prayers.
It's not me.''
But in my concluding remark, let me say that while this is the doctor
saying, ``You've got a debilitating disease and it can ruin your
life,'' the important thing is that the doctor also is saying, ``but I
can cure this disease. I can cure this disease. But the cure involves
you changing your lifestyle. You're going to go on a diet.''
Now it is up to us. I am ready to do both. And I am confident
ultimately Congress will--ultimately we will fix this problem. If we do
it now, the burden is going to be heavy but it is going to be bearable.
If we delay it we are going to end up ultimately denying some benefits
and we are ultimately going to lower the living standards of the next
generation. Both those things can be avoided. I hope we can avoid them.
I yield the floor.
Mr. KYL addressed the Chair.
The PRESIDING OFFICER (Mr. Thomas). The Senator from Arizona.
Mr. KYL. Mr. President, I want to, first of all, thank Senator Gramm
of Texas for his leadership in dealing with this Medicare funding
crisis that faces our country. The comments that he just made ought to
illustrate to us why it is incredibly important for the Senate and the
House to work very quickly to address the challenge set forth in the
report issued yesterday by the President's trustees on Medicare.
As Senator Gramm pointed out, and I will quote from the trustees'
report:

The Part A Hospital Trust fund will be able to pay for
benefits for only about four years [until 2001] and is
severely out of financial balance in the long range. The
trustees urge enactment of legislation this year to further
control program costs and extend the life of the trust fund.

Clearly, Mr. President, the time is upon us. We cannot wait any
longer. What I am going to talk about briefly today is the fact that we
have some proposals that are very short range and very minor in their
improvements, while Senator Gramm is taking a longer look at the
problem here toward the end of fixing it for a long time so that we do
not have to keep putting these Band-Aid, short-range approaches into
effect.
The primary problem is caused by the aging of the baby-boom
generation. Instead of this generation providing the workers who are
supporting, with taxes, a relatively smaller number of people in
retirement, those baby boomers are going to be the retirees who need
the medical care, and they will not be supported by as large a group of
workers as exists today.
The Medicare part A hospital program is already starting to feel this
baby-boom bulge. As I said, it is caused

[[Page S3709]]

by the rapidly aging group of baby boomers turning 65 and becoming
eligible for Medicare.
Medicare will hospitalize 200,000 more seniors this year than last
year. And the net increase will get larger and larger until it plateaus
somewhere between the years 2012 and 2032. During that 20-year period,
the system will experience a steady net increase of 1.6 million new
seniors per year. Think of that, Mr. President, 1.6 million baby
boomers retiring each year for 20 years, creating this huge bulge of
retirees that are going to be eligible for Medicare benefits.
And at the same time, during this same period, the relative number of
workers is going to be decreasing so the payroll tax revenues will
dramatically decline. Without prompt congressional action and
Presidential support--it is obvious; and the trustees made this point
yesterday--Medicare will soon be unable to fulfill its commitment that
our Federal Government has made to our retiree population.
Let me discuss briefly the two plans of the parties. Neither the
Republican plan or Democratic plan, frankly, were sufficient last year
to deal with this problem.
The Democratic plan relied primarily on provider reimbursement
reductions to reduce costs. That means we just pay the hospitals and
doctors less money to do the same thing. Well, there is a point beyond
which that does not work. Obviously, the hospitals and doctors do not
have to treat these patients and they will conclude after a point that
it simply is not cost efficient for them to do so and they are not
going to do so.
Unfortunately, the Republican plan also relied, to a certain extent,
on reductions in reimbursement to providers though less heavily than
the Democratic plan.
The Republican plan also had another feature which was good and that
was that there had to be some real reform in the system. And
competition was the centerpiece of that reform. The idea was that you
controlled costs by having increased competition among those who were
providing the benefits to the Medicare patients. You create different
products--products that have names like PPO's, preferred provider
organizations; PSO's, provider sponsored organizations; and Medicare
savings accounts, MSA's; to go along with the HMO's, the hospital
managed organizations; and others that provide the care to the seniors
through different mechanisms, different combinations of hospitals and
physicians, sometimes in what are called capitating plans, sometimes in
other kinds of plans, but all of which are competing with each other
and therefore through that competition costs are kept in line.

The Republican plan also included medical malpractice reform to curb
the high costs of defensive medicine practiced by physicians and
hospitals as a means of avoiding liability lawsuits.
The Congress and the President have acknowledged the need to slow the
rate of increase in Medicare costs. According to the Congressional
Budget Office, the President's current proposal would save about $89
billion over 5 years. The Republican plan last year would have saved
about $105 billion over the same period, along with the savings
attributed to increased competition. But the key point here is that no
one contends that either of these plans will achieve long-term
solvency. More is needed to save Medicare than just greater reductions
to reimbursement providers.
As I said, the overload of the system begins in about the year 2010
when the first wave of this baby-boom generation begins to retire. And
the President's plan does not even make it to that year. The
President's savings only work to about the year 2007. Then you would
have to start all over. The Republican alternative is better but it
staves off bankruptcy only until about the year 2012. So clearly,
before this baby-bulge meltdown occurs we have to have longer-range
reform.
Regardless of the reimbursement to provider reductions or product
competition structural reforms something more will have to be done
because there just are not enough workers that will support the growing
number of retirees.
To put it in perspective, Mr. President, in 1964 there were 3.5
workers for every beneficiary. And the total has grown to 37 million
beneficiaries. The Medicare trustees estimate that by the year 2030
when the last baby boomer turns 65 there will be only 2.2 workers per
beneficiary. So the current system which functions on a transfer-
payments basis made directly from worker to beneficiary is clearly
unsustainable. That 2.2 workers cannot possibly pay all of the expenses
to run the Federal Government, all of the retirement benefits for
Social Security and in addition to that support this growing group of
seniors for their health care needs.
It is time to investigate whether an investment-based health care
system may be part of the solution to this approaching meltdown. This
is the subject that Senator Gramm was talking about a few minutes ago.
His investigation is into several proposals that would ensure the long-
term solvency of the Medicare Program.
And one of those proposals would allow workers to create their own
medical IRA, an individual retirement account, for medical purposes by
redirecting some or all of their payroll tax--it is now 2.9 percent--
into a savings account for medical purposes. His idea is that each
employee's account would grow over his or her working life and would
pay for health care after retirement.
A series of studies have been done here at Texas A&M. And economists
there in studying this have reached some interesting conclusions. For
example, assuming a real rate of return of 3 percent--a very low rate
of return on investment--a 22-year-old person could direct 1.3 percent
rather than the current 2.9 percent of their payroll tax into a medical
IRA, and at age 65 this person could purchase a policy that would
provide roughly the same coverage that Medicare provides today. So you
could put much less money that you are earning into this payroll tax
and still come out the same place when you retire.
If the real rate of return were the Standard & Poor's average over
the last 70 years of 6.5 percent, a 22-year-old would have to invest
only 0.4 percent of his or her wages to achieve the same result. So you
can see that a real investment in an IRA-type investment by people
would provide the same benefit at far less cost if the rate of return
were even no better than the average that has existed over the last 70
years.
Obviously, this kind of proposal would have to address some
transition costs, the costs of converting from the current system to an
investment-based system as well as Medicare's unfunded liability which
is estimated today to be $565 billion. Without reform, this amount is
projected to reach $3.9 trillion in 10 years, and in 20 years $6
trillion.
Clearly, we cannot allow this system to continue. We are going to go
bankrupt taking care of our Medicare population if we do not invoke
fundamental reform.
So the Congress and the President, both, must heed the trustees'
warning, work together to protect current beneficiaries, while also
working to provide a secure retirement for today's workers who are
going to need something better than the Medicare system that is in
existence today. We are going to need some kind of innovative program,
such as that suggested by Senator Gramm, to enable them to invest a
small amount today, which over time will grow to an amount that will
take care of them in their retirement years.
Increased Medicare product competition and medical IRA's funded by
investing the payroll tax represent two of the many potential
components of reform. We need to develop a consensus on these reforms
on how to protect the current beneficiaries and the new group of baby
boomers. If we begin doing it today, by the time the problem is really
upon us, we may have a system in place that will provide this
protection. If all we do today is support another short-range solution,
we are going to find ourselves in true bankruptcy by the time the baby-
boom generation retires.
I commend the efforts of Senator Gramm of Texas in bringing this to
our attention, in bringing innovative solutions to the floor. I hope my
colleagues and I will be able over the next several weeks to put this
into legislative form so in the long run we will have solved the
problem, and future generations here will not have to worry about it
the way we have to struggle with it today.

[[Page S3710]]

Mr. ROTH. Mr. President, yesterday, the Medicare and Social Security
trustees released their annual reports on the actuarial status of both
trust funds--a report which is actually due on April 1 of each year.
The board of trustees has six members: the Secretaries of Treasury and
Labor; the Commissioner of Social Security, and two public trustees
appointed by the President.
As expected, there are no surprises in yesterday's reports, and there
is no good news.
As most Americans know by now, the Medicare hospital insurance [HI]
trust fund is close to bankruptcy. In fact, the trustees' report
confirms that the expected bankruptcy date remains just 4 years away--
in 2001. The problem is pretty basic--more money is flowing out of the
HI trust fund than is flowing in. Trust fund assets are quickly being
depleted. In 2001, they're gone.
Although most attention is focused on the impending bankruptcy of the
HI trust fund, the trustees report that the supplemental medical
insurance [SMI] trust fund (Medicare part B) is also a serious problem.
SMI spending is a blank check on the Treasury. Over the past 5 years,
SMI spending has grown 14 percent faster than the economy. Without
savings in part B, we cannot say we have affectively tackled the
problem of fixing Medicare. In the words of the public trustees, part B
growth is unsustainable over time.
In bringing about a lasting solution that will protect and preserve
the Medicare Program, all the Medicare stakeholders will have a role to
play--hospitals, doctors, nursing homes, beneficiaries, and others. The
public trustees appointed to represent the public expressed this
challenge. They stated that, ``Medicare cannot stay exactly as it is
and it is misleading to think that any part of the program--beneficiary
premiums, providers payments, controls on utilization, covered service
or revenues--can be exempt from change.''
I agree with the trustees' recommendation that a bipartisan advisory
group should be put together to craft a long-term solution to
Medicare's fiscal crisis. In fact, in February, with Senator Pat
Moynihan, I introduced a bill to address Medicare long-term challenges
by establishing a national bipartisan commission on the future of
Medicare. This Medicare commission would serve as an essential catalyst
to congressional action, consolidating bipartisan support, and
ultimately lead to a solution that will preserve and protect the
Medicare Program for current beneficiaries, their children, and
grandchildren.
Although the financial plight of the Medicare Program is urgent, we
must also be mindful of the longer term--but no less serious--problems
of Social Security. Beginning about 2012, payroll taxes will no longer
cover benefits. We must surely act sooner than later if we are to avoid
a crisis in Social Security.
We need to assure the trust in the trust funds remains, not just for
today's beneficiaries, but also for tomorrow's. We must ensure that
Medicare and Social Security will be there for our children and
grandchildren.
Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
(Mr. KYL assumed the chair.)
Mr. THOMAS. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. THOMAS. Mr. President, I want to thank my colleagues for coming
this morning to talk about Medicare. I want to take a couple of minutes
to sum up and make some comments with respect to my views on Medicare.
First of all, I cannot think of a more important issue to deal with,
one that is more difficult to deal with, one that has been put off
politically because of the difficulty of dealing with it. But certainly
the time has come to which we have to face up to doing it. I think it
is likely that we will.
Over the last several years, particularly in the last election, it
was used as an election issue. The President and the administration
generally said those Republicans simply want to do away with Medicare,
want to cut it. That is not the point at all. I think most everyone
knew at the time that was not the point at all. Some very unfactual
things were said. Now most anyone who has paid any attention at all to
the system, to the status, has to say, ``Look, we have to make some
changes. If we do not make changes we will not have the results we
need.'' And the results we have seen are an increasing challenge to the
validity of the program, and the fact that the program will not last
over another 4 years.
So the report of the trustees is there--trustees appointed, most of
them, by the President--who have laid out the facts, who have said the
good news is that it still will expire in 2001, the same year it was
said to expire last year. The bad news is that it is no better than it
was and we are 1 year closer to it. That report is there. It is
projected that the program will go broke in 4 years. This confirms what
we have known over a period of time. Now the time has come to do
something. We ought to take advantage of this opportunity. We can make
some changes. I think both the Senator from Arizona and the Senator
from Texas indicated we have a difficult issue, but we can make some
changes. The longer we wait, the more difficult it will be to rectify
the problem.
We have already begun to move into the area of giving some choice to
seniors. I think that is a great idea. If we are going to have choice
of managed care, for example, which has brought down the costs in many
cases, we have to do something about the payments that are made
currently. The payments for Medicare, HMO's in some counties in New
York are $750 a month. Those same payments in Wyoming, and in North and
South Dakota are $220. We do not have the opportunity in our States to
use managed care. Furthermore, those high payments have allowed the
benefits in this New York county to be greater than the benefits in
Wyoming for a program that has all been financed by the same payments
from everyone--2.9 percent. That is unfair. We need to change it. There
are aging and disabled persons who depend on it. We need to do
something. We need to give some flexibility. We need to be able to use
some managed care plans.
We also need to take a long look at fraud and abuse. We had some
hearings a couple of years ago, and I am sure things have not changed,
where nearly 10 percent of this enormous fund was lost in fraud and
abuse. We can do something about that.
Mr. President, I simply again want to thank my friends for coming
here. I think we have to focus on this program. The sooner we find some
solutions, the less severe any changes will have to be. We can, indeed,
do that.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call.
Mr. D'AMATO. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER (Mr. Thomas). Without objection, it is so
ordered.

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